The intergenerational transmission of economic development

In my last post, I noted one of the major themes of a new Journal of Economic Literature paper, How Deep Are the Roots of Economic Development (ungated pdf). Enrico Spolaore and Romain Wacziarg reviewed some literature that makes a strong case that it is population, not institutions, that underlies long-term economic growth. This post turns to the focus of the second half of the article - the genetic and cultural intergenerational transmission of development. If it is populations that underlie development, how are the traits that affect development passed through the generations?

Spolaore and Wacziarg start their analysis by slicing the analysis of intergenerational transmission into two dimensions. First, there is the genetic and cultural dimension, which comprises three types of transmission: genetic, cultural and gene-culture coevolution (often called dual inheritance theory). Under gene-culture coevolution, both genes and cultures are transmitted across generations in a unified framework.

The second dimension concerns whether the intergenerationally transmitted traits directly affect productivity and economic performance, or act as a barrier to the flow of technological and institutional innovations. It is this second pathway that is the subject of the Spolaore and Wacziarg’s paper The Diffusion of Development, which analyses the effect of genetic distance on economic development.

With these dimensions, we have six possible combinations into which we can classify this type of research. I am not a fan of this taxonomy, largely because of the biological-cultural dimension. First, there is no case where there is not gene-culture interaction. Where a paper tends to focus generally relates to whether the question being asked warrants one of these factors being held fixed for the analysis. Further, it is difficult to make a model of economic development that is exclusively genetic as they inherently contain culture - the economic part of the model. For example, Spolaore and Wacziarg classify Galor and Moav’s paper on the inheritance of the preference for high or low quality children as being biological, even though technology progresses due to the genetically predispositions of the agents, and technological progress causes changes in the relative fitness of the model agents. There is two-way feedback - a gene-culture interaction.

Funnily enough, Spolaore and Wacziarg also do not seem enamoured with their distinction between biological, cultural and gene-culture evolution, although for different reasons to me. They conclude that:

[T]he most recent scientific literature suggests that it may be conceptually very difficult, or even meaningless, to separate biological and cultural mechanisms, given the coevolution of biological traits. Consequently, a more productive approach, from an empirical perspective, is to focus on whether intergenerationally transmitted traits - whether biological or cultural - operate directly or as barriers to the diffusion of innovations.

But are they seriously saying that the dairy example they offer - coevolution of the milking of livestock and lactose tolerance - has a meaningless distinction between culture and genetics? In parts of the article they seem to have taken the idea that nature and nurture interact and inferred that this means the distinction cannot be made. But it can, just as in the dairy example. What would be incorrect is to say that the dairying example is purely a genetic or cultural process.

Another factor that may have triggered their assessment about the nature-nurture distinction is that in articles and books analysing genetic factors underlying economic development, the author is often equivocal about whether the transmission mechanism is biological or cultural. In Galor and Moav’s paper I referred to above, they note in a footnote that transmission could equally be cultural. In Greg Clark’s A Farewell to Alms, Clark often appears to be wavering between whether the transmission of traits was cultural or genetic (although he appears to have moved more to the genetic side).

While there is equivocation from those who suggest there may be genetic factors, there is usually no such uncertainty expressed by those who suggest there is transmission of cultural factors underlying economic development. For example, Spolaore and Wacziarg refer to a paper by Doepke and Zilibotti in which altruistic parents shape their children’s preferences, ruling out genetic factors on the basis that the timescale covers “at most, a few centuries”, despite it being a timescale similar to that considered by Clark. A paper by Fernandez and Fogli on second generation Americans and the explanatory power of preferences in their home country could similarly be placed in the genetic basket, as could Algan and Cahuc’s paper on the inheritance of trust. Even where there is an explicitly cultural transmission, such as Francois and Zabojnik’s analysis of trust, the persistent trait sought to be explained often has material heritability in modern environments, suggesting a genetic factor is relevant.

Having said the above, the way I would frame the taxonomy is to consider it all as gene-culture coevolution, and within that framework ask what genetic and cultural factors are and how they are evolving and driving the economic outcomes.

I find Spolaore and Wacziarg’s second dimension of direct and barrier effects more useful. But towards the close of their article, they suggest that analysis of the direct effects of intergenerationally transmitted traits may be too hard, making a focus on barrier effects more likely to yield results.

For instance, while barrier effects can explain how the Industrial Revolution spread across different societies over time and space, it is much harder to identify which intergenerationally transmitted traits, if any, are responsible for the original onset of such a major technological and institutional change. This difficulty is due to at least two reasons. Firstly, phenomena such as the Industrial Revolution are, almost by definition, unique and exceptional, and therefore one cannot build a data set of different and independent Industrial Revolutions to test alternative theories of onset. Secondly, such a complex phenomenon is likely to be the outcome of a vast set of forces and causes, including historical accidents and contingencies.

True, it’s a hard question. But it is strange to close an article on the deep roots of development that tracks those roots to thousands of years before the Industrial Revolution with a statement that we may not be able to figure it out. More importantly, classing observed effects as barrier effects without analysing alternative hypotheses such as the direct effect of intergenerational transmission runs the risk of misspecification of models and incorrect attribution of causal relationships.

Ultimately, I wonder how much Spolaore and Wacziarg’s position is driven by the academic barriers to open discussion on genetic direct effects on economics development. It’s not a comfortable area of analysis and can attract critical attention, as Ashraf and Galor’s work did earlier this year.

Still, having spent most of this post complaining about a couple of parts of it, Spolaore and Wacziarg’s article is excellent. And as I noted in my last post, I’ve added the paper to my evolutionary biology and economics reading list.